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You Don’t Need To Skip Your Starbucks: Is Excessive Frugality the Key to Reaching Retirement?

For many, preparing for retirement means spending strictly and limiting unnecessary expenses during their working years. Saving money is extremely important, but is frugality the key to reaching retirement?

You may have heard that simply avoiding small expenses – such as eliminating your daily trips to the coffee shop – can lead to big savings over time. But, unless you are actively funneling those savings towards a goal, they’re not likely to make a major difference. You don’t need to sacrifice things that make your life enjoyable to maintain a healthy budget and reach your retirement goals.

If you are working towards financial independence, then you’ll want to acquire multiple methods for building wealth. Read on to learn how excessive frugality isn’t the key to retirement, and what you should be doing to reach your goals.

The Issues with Needless Frugality

Housing Mistakes:

Under the right circumstances, renting can be a beneficial move. Depending on where you live and the housing market, it may even save you money. However, renting can mean missing out on the opportunity to build equity in your home and take advantage of certain tax benefits. Plus, when you are ready, selling your home offers the potential to make you money in the long run, especially if you’ve made improvements to the property.

Quality of Life:

Cutting back on spending could mean missing out on important experience with friends and family, such as nights out or vacations. Neglecting to let loose and relax (within reason) not only impacts your quality of life, but it could affect future opportunities. New experiences help broaden your perspective and improve your mindset. It’s important to strike a balance between what’s important now, and what’s important later. Allowing yourself to live the life you want today can enable you to work longer and delay retirement without feeling like you’re giving anything up.

I experienced a lot of loss at a young age. It made me realize the importance of time, how sometimes the now is just as important as the later. Being a financial advisor it is easy for me to focus on the numbers and how much I’m saving. I keep the big picture in mind by saving early so I don’t feel guilty when I splurge on a trip with my family and friends – like my annual trip to see the Giants play in a different stadium each year!

Holding Onto Money:

Saving is important, but that doesn’t mean you should be hiding your money under your mattress. Keeping your money OUT of a savings account is counterproductive, as the value of your savings will only diminish with inflation. Place your money in a savings account, or put it to work for you in an investment vehicle.

What Can You Do Instead?

Contribute To Your 401(k)

Retirement savings accounts, such as a 401(k) or IRA, are a great way to save for retirement. If you choose to have money withdrawn automatically, you’re saving money every paycheck without even thinking about it, and your employer may match a portion of your contributions. By the time retirement arrives, you will have made money from your savings and the extra contributions accumulated from your employer.

Invest Early

Investing can be an effective way to accrue wealth over time. The chart below demonstrates just how effective investing early can be.

The Magic of Compound Interest

But investing should be done in accordance with your personal tolerance for risk, as reaching your retirement goals shouldn’t risk your lifestyle and financial standings today. A financial advisor can help you on your road to success.

Maintain a Healthy Mindset

In addition to being ineffective, excessive frugality can increase stress. Instead, building wealth will help you prepare for retirement and help limit the anxiety created by money.

Saving is an important aspect of wealth, but excessive frugality can be detrimental, especially when it is your only method to prepare. Excessive frugality isn’t the key to reaching retirement. Instead, focus on growing your wealth by keeping these tips in mind and consulting a financial advisor to start building your wealth and securing your retirement.


This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.